Nokia’s tough-talking new CEO Pekka Lundmark wasted little time in ripping-up the company’s strategy, restructuring its divisions and implementing an executive shake-up.
Ahead of the release of further details on his grand plan later this month, the big question is will it be enough to turn around the Finnish giant’s fortunes?
Lundmark will have been in charge for less than five months when he unveils his strategy for Nokia at its update event on 16 December, having already provided a scathing assessment of the state of the company and outline of the restructure [1] alongside its Q3 results.
During his short tenure, the company’s CMO and CTO have both announced their forthcoming departures [2], with several other executives preparing to have their remits changed as part of the divisional revamp.
Speaking on his first quarterly results call, Lundmark flagged his plan for wholesale operational and cultural changes designed to claw back lost ground in the 5G market, and create a “turnaround mindset”.
At the time he warned of a financially difficult 2021 and announced it was ditching its end-to-end sales strategy in favour of creating four separate divisions with specific goals and expectations.
Though he seemed confident on Nokia’s future prospects Lundmark made it quite clear there would be no hiding place for divisions not pulling their financial weight: “Return on capital employed will be a key metric and justifying sub-par performance by being part of an end-to-end offer will no longer be acceptable.”
He also said the company would “reassess options” if any segment didn’t have a clear path to compete for market leadership.
At its forthcoming investor event, he will likely flesh out the plan to give more autonomy and responsibility to individual lines. However, GSMA Intelligence head Peter Jarich told Mobile World Live (MWL) a switch away from an end-to-end offer could bring-up issues with customers unless handled with care.
“The optics around moving away from an end-to-end focus are something Nokia will need to manage,” he said.
“After messaging the value of its capabilities, a new strategy which is positioned as an about face could be confusing to customers: those customers will need to understand how Nokia can (and will) deliver complete solutions, separating product capability discussions from organisational considerations.”
GlobalData service director for telecom technology and software John Byrne believes it was a generally positive move, in the sense the company would have tighter focus in its divisions.
Though he added: “Breaking out into individual P&Ls also represents an acknowledgement that, in many respects, the pendulum is swinging away from best-of-suite single-vendor end-to-end strategies as networks continue to disaggregate across multiple domains.”
“The problem for Nokia is that their overarching theme for the past five years has centred around having the best end-to-end portfolio.”
Catching-up on 5G
[3]Thus far in his public comments, Lundmark (pictured, right) has been bullish on the prospects of the company’s networks business, highlighting a need to pursue leadership in emerging technologies including open architecture and virtualisation, in addition to catching-up on 5G.
How this will be achieved and, vitally how it will be funded, is likely to form a central part of comments made in the coming months from senior executives at Nokia.
Although Nokia’s chiefs have previously talked-up its progress on 5G [4], despite apparent tender failures in China and rumours of losing-out on a lucrative contract with Verizon [5], during the Q3 investor call, Lundmark admitted on the Q3 earnings call it was, indeed, behind its rivals.
He pointed to a number of “root causes”, including the fact that while its rivals were ramping 5G R&D investments, Nokia was still focused on migrating assets from its acquisition of Alcatel-Lucent into its 4G range.
The company’s growth by acquisition strategy, he noted, also meant it needed to support multiple platforms across many years, and insufficient links between product development and front-line teams.
In terms of solutions, he hinted at changes to its R&D set-up, completion of a system-on-chip roadmap and addition of new features to its portfolio.
Communication breakdown
Perhaps Lundmark’s most damning assessment so far when it came to changing the corporate culture at Nokia regards its communication.
“What is going to be really important for us in the future is to communicate as transparently as possible,” he said. “We want to develop internally a culture of openness in both good news and bad news so that management can get accurate information about what is going well and what is not going well.”
Assessing the CEO’s tenure so far and the restructure plan outlined in October, Byrne told MWL: “Pekka Lundmark has embarked on a significant change in direction. As he does so he can also look not too far to his west to see the dramatic and successful turnaround at Ericsson since they brought in their new CEO four years ago. That should give him hope.”
“However, it calls for the right plan and the right execution. There are several major challenges. Rightly or wrongly, the decision to create four standalone P&Ls likely signals to the market that some of these units could be being prepped for potential M&A activity. This in turn could convey instability and/or impermanence.”
“More fundamentally, Nokia may need to address restructuring fatigue among customers that have now seen what appears like an ongoing set of restructuring initiatives and management upheaval in the past five years and will need convincing that this is the true go-forward structure for the next phase of Nokia.”
Given the Nokia chief’s scathing words so far about the past, it will be interesting to see how bullish he is about the future and exactly what this “turnaround mentality” means in real terms, including how he plans to catch-up with 5G rivals.
The new structure set to be unveiled later this month is scheduled to be implemented in January 2021, with further detail expected at a Capital Markets Day two months later after which we should have a much clearer idea of where Nokia is headed.
The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.
[1] https://www.mobileworldlive.com/featured-content/home-banner/nokia-scraps-end-to-end-strategy-warns-on-outlook
[2] https://www.mobileworldlive.com/featured-content/home-banner/nokia-cto-weldon-heads-for-the-door
[3] https://www.mobileworldlive.com/wp-content/uploads/2020/03/pekka-lundmark.jpg
[4] https://www.mobileworldlive.com/featured-content/home-banner/suri-plays-down-china-impact-teases-unicom-deal
[5] https://www.mobileworldlive.com/featured-content/home-banner/nokia-dampens-rumours-of-verizon-5g-loss
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